Business Law - Exam 3

Four Elements of a Contract

• Voluntary Agreement (Offer and Acceptance)

• Consideration

• Capacity

• Legal

Unilateral Contract

Offeror promises something, Offeree accepts by completing the request

Bilateral Contract

Offeror promises something, Offeree accepts with a promise to complete the request

What are the 4 parts of classifying a contract

• Formation (Express, Implied, Quasi)

• Performance (Bilateral, Unilateral, Executed, Executory)

• Validity (Valid, Void, Voidable, Unenforceable)

4 Types of Validity for a Contract

Valid, Void, Voidable, Unenforceable

Valid Contract

A Contract that meets all legal requirements for a binding contract.

Unenforceable Contract

A contract that meets basic legal requirements but is not enforceable due to some other legal rule

Voidable Contract

A contract where those who were harmed have the legal right to cancel/rescind their obligations under the contract

Void Contracts

An agreement that creates no legal obligations, for which no remedy will be given

Express Contracts

Parties directly stated terms orally or in writing at the time of the contract creation.

Implied Contracts

Terms of the contract are not directly stated, instead they are implied from circumstances

Executory Contract

A not yet fully preformed, completed, fulfilled, or carried out contract that is still to be completed wholly or partially

Executed Contract

When all parties have fully preformed their contractual duties

Two sources of contract law

1. Common Law

2. Uniform Comercial Code (UCC)

What is the 2nd article of the UCC

UCC contract rules only apply to the sale of goods

What is a Good?

A tangible, moveable, personal property

Hybrid Contract

A contract including both the sale of goods and a service

If a hybrid contract has $500 in value of Goods and $250 in value of services does

Yes, the UCC applies because the contract has more value in goods than services

What does the UCC cover

• Fills gaps for missing essential terms

• Regulates contracts of sale of goods

• identifies which party holds the risk of loss

Unjust Enrichment (Quasi-Contract)

A legal obligation imposed by a court to prevent one party from being unjustly enriched at the expense of another even though no formal voluntary contract exists.

3 Steps of a Quasi-Contract

1. A Provides benefits for B without a contract

2. B knowingly accepts benefits

3. B refuses to pay

Non-Contract Obligations

• Quasi-Contract

• Promissory Estoppel

Promissory Estoppel

A legal doctrine allowing a court to enforce a promise, even without a formal contract or consideration to prevent injustice

4 Elements to a Promissory Estoppel

1. A promises B something without a contract

2. A reasonably foresees the B will rely on this promise

3. B really does rely on that promise

4. An Injustice occurs due to the reliance

Offeror

the party making the offer

Offeree

The party whom an offer is made to

3 Requirements to Distinguish an Offer from a Proposal

1. Intent

2. Specificity

3. Communication to Offeree

Two ways to determine Intent

• Subjective Approach

• Objective Approach

Objective Approach to Intent

If a reasonable person had heard what the Offeror said, would they think an offer was made?

Essential Terms to be Specified

Price, Quantity, Delivery Terms, Time for Payment

Can you be missing Essential Terms?

Under Common Law, No
Under UCC Laws, Yes the UCC will fill in the gaps

Communication to Offeree

Offeror directly and objectively indicates an intent to be bound by clear terms

Exceptions to a Contract Offer Requirement

• Advertisements

• Rewards

Advertisements (As an Offer)

Generally not considered an offer unless extremely specific about quantity and price

Rewards (As an Offer)

Generally, these are considered Unilateral Contracts, so long as the offeree completes the request with knowledge of the reward being offered.

7 ways to terminate an offer

1. Expressed Terms

2. Lapse of Time

3. Revoke the Offer

4. Rejection

5. Death or Insanity of either party

6. Destruction of Subject Matter

7. Intervening Illegality

Termination by express terms

Offeror includes terms in the offer that specifically limit the effective life of the offer. Could be a time period, an event or other specified reasons.

Termination by lapse of time

If an offer does not have an expressed time limit, it will be considered terminated after a reasonable amount of time.

The more rapid the price change of the subject the shorter the reasonable time will be

Termination by Revocation

An offer can be revoked at any time prior to its acceptance, even if the time it claims to be open has not yet expired

Exceptions to the Rule of Revocation

• Offeree purchases Options (right to keep the offer open)

• Offers for Unilateral contracts that have been started

• Promissory Estoppel

• Firm offers for the sale of goods

When is Revocation Effective?

When received by the offeree

Termination by Rejection

The offeree rejects the terms of an offer through direct rejection or with a counteroffer that is materially different.

When is rejection effective?

When received by the offeror

Termination by death or insanity of either party

when one or more parties involved in the offer die or are deemed mentally incapacitated

Termination by Intervening Illegality

The process to be performed from the offer becomes illegal due to law changes

Two parts of a Voulantary agreement

Offer and Acceptance

Acceptance

the actual or implied receipt and retention of that which is tendered or offered

3 required elements of an acceptance

1. Intent

2. Acceptance of the Offerers terms

3. Communication of Acceptance

Mail Box Rule

Allows acceptance to be valid once sent regardless of when received

When is an Acceptance Effective

effective when sent

Exceptions to where Silence is considered an acception

1. History of behavior

2. Offoree specifies

3. Behavior acting as though contract was accepted

Consideration

Legal value, bargained for and given in exchange for an act or promise. Does not require economic value.

Four forms of Legal Value

1. You do something of value

2. You promise to do something of value

3. You don’t do something you are legally entitled to do

4. You promise not to do something you’re legally entitled to do

Exchanges that fail to meet consideration requirements

• Illusory Promises

• Pre-Existing Duties

• Past Considerations

Illusory Promises

A statement that appears to be a binding contract but is unenforceable by law and does not legally obligate anything.

Illusion of a promise

Cancellation Clause - Illusory Promise

A contract allowing either party to cancel at any time is an illusory promise, as there are no restrictions keeping the parties in the deal. Added restrictions can make cancellation clauses legal.

Output Contract

One party agrees to buy all of another parties production of a particular commodity, this is an enforceable contract.

Requirements Contract

One party agrees to supply all of another parties needs for a particular commodity, this is an enforceable contract

Exclusive Distributorship

A manufacturer enters an agreement giving a distributor the exclusive right to sell the manufacturers products in a particular territory, this is an enforceable contract

Are acts of pre existing duty considered consideration?

No its not consideration

Preexisting Public Duty

Offering to follow through on a pre existing duty to not break a law is not consideration

Preexisting Contractual Duties

When parties to an existing contract agree to modify that contract

Under common law, some new consideration will be required,

Under UCC if it’s the sale of goods sole no new consideration will be required.

UCC Modification Rules

If the original contract must be in writing so must the modif

Past Consideration

An act benefit given in the past that was not given in exchange for the promise in question

Exceptions to the Consideration Requirement

1. Promissory Estoppel

2. Promises to Pay Back Debts Barred by Statute of Limitations

3. Promises to Pay Debts Barred by Bankruptcy Discharge

4. Charitable Subscriptions

Promise to pay debt barred by statute of limitations

Sets an express statutory time limit on a person’s ability to pursue any legal

Promises to Pay Debt barred by Bankruptcy Discharge

If a debtor makes a new promise to pay a debt that was legally erased in bankruptcy, this new promise is fully enforceable without the creditor providing any new consideration

Charitable Subscriptions

When a person promises to make a donation to a charity or educational institution, and the organization acts in reliance on that promise. Even though the charity gave no consideration in exchange, courts will force the person to pay the gift.

5 theories to get out of a contract

1. Misrepresentation

2. Fraud

3. Mistake

4. Duress

5. Undue Influence

Misrepresentation

An assertion that is not in accord with the truth

Fraud

A type of misrepresentation that is committed knowingly with intent to deceive

Scienter

A requirement for fraud and deceit cases; knowledge on the part of the person making the representations at the time when they are made that they are false

Deceit

A tort involving intentional misrepresentation or cheating by means of some device

4 Elements needed to prove Misrepresentation Theory

1. Statement of Fact

2. False Statement of Fact to be material or significant

3. Actual reliance on the statement

4. Reliance is justifiable

5 elements needed to prove fraud theory

1. Untrue Statement of Fact

2. False Statement of Fact to be Material or Significant

3. Actual Reliance on the Statement

4. Reliance is Justifiable

5. Scienter

What legal theory did Michael Jordan use to get out of his contract?

Fraud

Why did the court rule in favor of Jordan?

The mistress made a false statement of fact (claiming he was definitely the father) that she knew or should have known might be false (scienter), and Jordan justifiably relied on it

Mistake

A belief about a fact that is not in accord with the truth and relates to the facts at the time of the contracts creation.

2 kinds of mistakes

1. Mutual Mistake

2. Unilateral Mistake

Mutual Mistake

When both parties to the contract have erroneous assumptions about some facts of the contract.

3 elements to prove mutual mistake theory

1. Mistake was basic

2. Mistake was material

3. The party affected does not bear the risk of the mistake

4 elements to prove unilateral mistake theory

1. Mistake was basic

2. Mistake was material

3. The party affected does not bear the risk of the mistake

4. Either

   1. The non-mistaken party caused or had reason to know of the mistake

   2. or it would be unconscionable to enforce the contract

Two situations where the defendant does not bare the risk of the mistake

1. The plaintiff expressly bears the risk

2. The plaintiff knows that the defendant does not know the true state of affairs

Duress/Coercion

the wrongful coercion that induces a person to enter or modify a contract

2 Types of Duress

1. Threat of physical violence

2. Physical Compulsion

Physical Compulsion

someone literally moves your hand for you to make you sign something.

2 things to prove Duress Theory

1. Improper threat

2. You had no reasonable alternative but to give into the threat

Improper Threat

A person would have to threaten to do something they were not legally entitled to do (i.e., a crime) for the threat to count for duress

Undue influence

Wrongful pressure exerted on a person during bargaining process, exerted through persuasion instead of coercion

2 elements to proving Undue Influence Theory

1. The relationship between parties is either one of trust and confidence or one in which the person exercising the persuasion dominates the person being persuaded

2. The persuasion is unfair

Capacity

the ability to incur legal obligations and acquire legal rights

3 classes of people who do not have capacity

1. Minors

2. Mentally impaired persons

3. Intoxicate persons

Emancipation

the termination of a parent’s right to control a child or receive services and wages from them

2 ways to become emancipated

1. Parents express or implied consent

2. Marriage, spouse now controls you

Does Emancipation provide capacity?

No, it does not provide capacity to a minor

Disaffirmance

The right for minors to avoid contracts as a means of protecting against overreaching by adults

Exceptions to minors’ disaffirmance right

A minor cannot disaffirm child support, student loans, car insurance

Exception to minors’ time of disaffirmance

minors cannot disaffirm a real estate contract until they are over 18

Ratification

the adoption or affirmance by a person of a prior act that did not yet bind them

Ratification by a Minor

Minors are legally incapable of ratifying a contract, once they turn 18 it is automatically ratified if they do not say anything differently.